Tehran traders

CME explored the heart of what is possibly the biggest IT market in the Middle East to meet the movers and shakers of Tehran's IT trade. While vendors may not be talking about the country, there is channel movement aplenty and opportunities abound for resourceful resellers and distributors.

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By  Alex Malouf Published  September 24, 2004

Iran's IT demand|~|31st-Aug04-019.gif|~|Mahmoud Ebrahimi, managing director at Comtronix|~|The country that vendors love not to talk about is in an IT frenzy. IT users in Iran are demanding the latest high-tech products and distributors and resellers are falling over themselves to cash in on the action. But with a US embargo and limited vendor support for the Iranian market, the channel has to find innovative ways to meet the needs of end-users. Channel Middle East went in-country to speak with the people who know the market best to get to the truth about what is going on. Mohammad HajSharifi, general manager at Albaloo Computer; Farzam Moeini, sales manager at Iranlaptop; Mahmoud Ebrahimi, managing director at Comtronix; and Vafa Kamalian, manager at Uvecoweb take us past customs and into the country to give a glimpse as to what is really happening in Tehran and beyond.

CME: How developed is the IT channel in Iran? How much does it compare to IT channels in other parts of the Middle East or Asia?

MOHAMMAD HAJSHARIFI: Of course there are similarities between Iran’s IT channel and those found outside of the country. But there are also major differences, due to the challenges posed by the US embargo. Because of embargo problems, shipment issues and money transaction problems, Iran’s channel is not as developed as it should be and so we rely on outside intervention. We use resources abroad to import our product into Iran. For this reason my company has an office in Dubai, based on Computer Street, for re-exporting goods.

FARZAM MOEINI: Due to the sanctions imposed on Iran, there is no formal, authorized and active distributor network existing in Iran. You cannot even find sub-distributors operating in the market. But as the IT market here is so vast and peoples' interest in IT is always growing, many companies have set up their own unauthorised distribution channels. In the notebook segment a few companies have established themselves through solid financing and cultivating suppliers. They have been able to grow their business despite the problems created by sanctions.

MAHMOUD EBRAHIMI: Some activities are easier to carry out and others are not. Vendors queue up to give us marketing funds to build up brand equity. Because of the size of the market — easily the biggest in the Middle East — and the hunger for IT, the channel is doing big business. But of course there are many difficulties when importing due to embargoes. The one issue that hits the channel hardest is product support. Distributors and resellers have to provide cast-iron guarantees as international warranties don’t carry any weight here. We have to give our customers a 48 hour RMA service to ensure that they are satisfied.

Cme: What does your company do? What is your company history?

MOHAMMAD HAJSHARIFI: Albaloo Computer is a major reseller of computer components in Iran. We also distribute for several well known vendors, including Gigabyte and Leadtek. The company was founded in 1994 and has extended its reach across Iran. We now have an operation in Dubai for re-export purposes.

MAHMOUD EBRAHIMI: We operate three companies in Iran. The first, which began in 1983, is focused on system assembly and has a production capacity of several thousand PCs a month. We set up the second company in 1990 and this is solely for distribution to our 180 channel partners across the country. The third company is for supplying government and large businesses with IT supplies.

VAFA KAMALIAN: Our primary focus is on e-business solutions. We have designed web applications for over a hundred Iranian businesses. The company moved into selling hardware and designing networks after our customers came to us and asked if we could provide them with these services. We started the company five years ago when the internet was not as good as it is now in Iran as we believed that people would take to the Internet. For the first two years it was really hard to stay afloat but nowadays we are doing well and are seeing demand grow.

Cme: What is the IT demand situation in Iran?

VAFA KAMALIAN: We have 15 million users over here and most of them are aged between 14 and 29. One in every five stores sells computers and IT products. Growth is explosive. Large companies are looking for solutions, software and hardware. Five years ago if you went to a company and advised them to set up a network they would have laughed at you. Now they are running after us to install networks.

MOHAMMAD HAJSHARIFI: When compared to other countries in the Middle East Iran is similar to Saudi in that consumers want high-quality goods and will spend good money on purchases. They buy international brands as well as Iranian-built systems. Demand is highest for A-brands. Iranians also buy B-brands but they will not touch C-brands.

FARZAM MOEINI: There has been strong demand for laptops over the last two years mirroring the global market. But whereas growth abroad may have been a few percent a year, laptop numbers have tripled over the last two years with 80% of the models coming from the US.
||**||Sourcing IT kit|~|KermitIran-side.gif|~|Even muppets can be used to help sell IT products in Iran|~|Cme: How easy is it to source product?

MOHAMMAD HAJSHARIFI: Sourcing product is not at all easy. We have shipment hassles and money transaction difficulties. These two issues produce a myriad of problems. You must be well established in Iran and in Dubai or a third country to import IT. Distributors and resellers have to be patient when importing and wait till problems are solved. It is difficult but possible as there are always ways to bring IT kit into the country.

MAHMOUD EBRAHIMI: There are a hundred ways of importing into Iran and only one is legal. For every one of our shipments we stick to the rules, pay taxes and get product in. It only takes five days to move product from Dubai to Tehran when importing legally and there are no difficulties bringing any products into the country.

Cme: Where are you actually sourcing product from?

VAFA KAMALIAN: Most products are brought in direct from Taiwan or re-exported via Dubai. Most of the big dealers here have offices in Dubai and Taiwan. If there are problems regarding customs they don’t work directly with Taiwan but instead bring product to Dubai from Asia or Europe and then re-export across the Persian Gulf.

MAHMOUD EBRAHIMI: We import from Hong Kong, Europe, Taiwan, China and Singapore. Even notebooks are imported directly. Some products are imported from Dubai but this is mainly for branded components when there is a surge in demand. But for large volumes we import directly from contacts in Asia.

Cme: Who are the main vendors operating in Iran and what are the most popular brands?

VAFA KAMALIAN: ATi is widely used, MSI too. People also know Asus very well. But brands often come and go. A rep will come here, he will do good work and build up sales. He will then leave and consumers forget the brand. This happened to Super Micro motherboards over the last few months. People look to local firms for support and not at vendor names as we cannot get direct support here. People here do not care about popular brands. They know what is the difference between Toshiba and Dell but end-users always consider service and support above anything else. International warranties are useless in Iran and there is no guarantee of service when sending product outside Iran for RMA.

FARZAM MOEINI: You don’t see people asking for specific vendors or brands when they come in and buy. But they do like the look of Toshiba, Sony and Dell. I would say that Dell is now the most popular and has knocked HP Compaq off its perch. Iranians are always looking for the best and latest products on offer even if they don’t need it.

MAHMOUD EBRAHIMI: For notebooks, Asus is popular, as is Toshiba and also HP Compaq. For ODD products the most popular is Asus, then LG and Samsung. The motherboard market is dominated by Gigabyte, with 70% market share. Then MSI, Shuttle, Asus and some smaller players like Soyo and Epox. 95% of the motherboard market is dominated by five brands — Gigabyte, MSI, Soltek, Asus and Shuttle. With VGA cards, GeCube and our own brand DigitalME are doing well. For monitors more than 70% of the market is controlled by LG, as they have a factory here. Then Samsung, and third is Hansol. For CPUs Intel accounts for 99.9% of Iran’s market. And finally Maxtor’s share of the HDD space is 95% and 5% for other big vendors.

Cme: What are the most popular products?

MAHMOUD EBRAHIMI: The biggest sellers are mainly finished systems, then components such as hard drives, CD Roms, monitors and notebooks. VGA cards are also very popular as Iranians demand high graphics performance. Last month we got a tender of 10,000 for VGA cards alone.

MOHAMMAD HAJSHARIFI: Market demand is still more towards desktops than notebooks. Notebook demand is not fixed but we think that in the coming years market demand for notebooks will grow. There is a craving for all new products in Iran. Four or five months after a worldwide technology launch you will find the products in Iran, and often before the product is available in Dubai. The product comes to Dubai and ships first to Iran rather than being sold in Dubai itself.

VAFA KAMALIAN: Network products and laptops are doing very well. Two years ago we could not even sell one laptop but today we are selling good numbers. You can find all different types of laptops in Iran and the variety is much more varied than in Dubai.
||**||Distribution channels|~|MohammedIran-side.gif|~|Mohammad HajSharifi, general manager at Albaloo Computer |~|Cme: Who do you buy from? Which distributors serve your needs?

MOHAMMAD HAJSHARIFI: We buy from Golden Systems, Sky Electronics and Fujitsu Siemens. Not direct but from abroad. Our Dubai company buys from them.

VAFA KAMALIAN: We buy from big dealers in Tehran like Saromat who in turn buy from Taiwanese suppliers. There is a complicated supply chain and we are possibly the fifth tier. Many people will tell you they are bringing in products direct from Taiwan but they are not. We don’t want to buy directly from Taiwan as we may get defrauded. You send the cash to them and you don’t get anything back aside from an empty box. Last year in Gitex I made a straight deal — I paid the money and I took the products. That was good. Buyers have to be so careful.

MAHMOUD EBRAHIMI: We buy direct from the factories in Taiwan and China for Asus, GeCube and other Asian brands. For certain fast-moving goods such as components we buy from all the major Dubai-based distributors.

Cme: What sort of margins can you make?

MOHAMMAD HAJSHARIFI: At times 0%! Margin for components is the same the world over. Sometimes we make money and sometimes not. But margins in Iran are often higher than other countries because of the risk of doing business here. Dealers need some threshold and buffers to protect against currency changes.

MAHMOUD EBRAHIMI: Margins can be as high as 15% gross but after paying for all the expenses involved when importing our net profit is around 4%.

FARZAM MOEINI: We do not sell directly to end-users. We instead instead buy in bulk and distribute through our network. For some models the margin is around 1% to 1.5%. For others the margins are slightly higher and we make about 3% or 4%.

Cme: Do you get credit from distributors?

VAFA KAMALIAN: A few provide us with credit. If they do, it is only for a small amount. We prefer to pay to in cash and avoid all the headaches that go with credit. Taiwanese companies do not give good credit and demand cash in advance. They want you to be the one to step in and take the risk.

MAHMOUD EBRAHIMI: Of course. In Iran credit payment is on average 60 days and this is an everyday part of business. We deal with several credit lines a week from China and the rest of Asia as well as with channel partners in Iran. I think 90% of deals are done on credit. Sometimes credit is extended to 90 days but the minimum has to be 60 to account for the turnover of stock and import times.

MOHAMMAD HAJSHARIFI: It is not easy to get credit when you are Iranian as insurers don’t cover you due to money transaction issues, shipping problems and custom difficulties. You must have an amount of respect in Iran to get credit from Dubai distributors. I have been doing business with one distributor for eight years. After three years they gave me a credit line of one-weekt. Right now I have a higher credit limit but it takes such a long time to build up. Dubai is insured and it is relatively safe to do business there, much safer than Iran.

Cme: Do vendors pay enough attention to the Iranian market?

VAFA KAMALIAN: I think vendors don’t pay any attention to Iran. Last year in Gitex I talked to ten senior managers from Taiwan and they didn’t know where Iran was. They told me they had been on a plane for nine hours and then asked me if it had taken me the same length to get here from Iran. They only know Dubai.

MAHMOUD EBRAHIMI: Very much so. It is common to see vendors visiting Tehran and many have opened offices here. With such a huge market why wouldn’t vendors be interested? But vendors who have invested in after-sales support are the most aggressive. No matter how much attention you pay the market, if there is no in-country support people will simply not buy.
||**||Looking forward|~|IranShop-side.gif|~|The latest IT hardware is freely available in Iran|~|Cme: How developed are the IT shopping centres and streets in Iran?

MOHAMMAD HAJSHARIFI: There are five huge malls in Tehran filled with hundreds of IT outlets. In major cities you have very good and very developed IT shopping malls that are much larger in size than Dubai’s Computer Plaza. In the major cities you can find large IT shopping malls. People find out what is available through the Internet and so product reaches even the smallest city very quickly.

Cme: How much room for growth is there in terms of PC penetration?

MAHMOUD EBRAHIMI: Demand in the Iranian market is around 100,000 PCs per month and these are mainly first time purchases and not upgrades. Demand may reach two million PCs annually after two years.

Cme: What level of marketing support do you get from vendors?

MOHAMMAD HAJSHARIFI: Vendors do not market in Iran by themselves. Normally they give marketing funds to us and we handle the marketing by ourselves. We give them proposals and we use their funds. For some US-based vendors there is zero marketing as we cannot give a proposal to them.

MAHMOUD EBRAHIMI: Vendors give us around 1% to 2% of our purchase amount to spend on marketing. This comes mainly from the likes of Asus, GeCube and other Taiwanese vendors. They help us with promotions, seminars and incentives for the channel.

Cme: What volumes do you achieve?

VAFA KAMALIAN: For the hardware market you have 10 million PC users. Everyone spends at least US$1,000 a year. That is US$10bn in total. This is for home users and not businesses. They really are spending so much.

MAHMOUD EBRAHIMI: We are seeing 20% growth year-on-year. This market is capable of a higher rate of growth, but still there are issues to be overcome, such as slow internet connections. We are one of the five major systems assemblers in Iran and we hope to double our production over the next year. On the distribution side we have a very high market share in components — on average 30%. We expect that we can hit 50% next year if our growth sustains its current rates.

Cme: Do embargoes and restrictions have any affect?

MOHAMMAD HAJSHARIFI: You can buy anything you want in this market but those who are connected with the right sources can import without difficulty. These brokers, who know nothing about IT distribution, misuse the embargo to bring in goods at low prices which then affects the prices of product brought in by us. For certain product segments it is not uncommon to find people using equipment which is way past its expiry date.

Cme: What are the attitudes to software piracy in Iran?

VAFA KAMALIAN: The government issued a rule against software piracy two months ago and we may get copyright enforced soon. While it is common for consumers to buy software for a dollar or two, big companies know that they cannot buy software on the street. They need product support but vendors need to invest. In Iran there is a high demand for CRM software. But most of the CRM applications are in English and no one will turn it into Persian. What can I do with it? Over the next few years ERP vendors will do big business here.

Cme: What are the major trends in the market at present?

MAHMOUD EBRAHIMI: The trend is growth. There is such a demand for all things computer related, not only for first time PCs but also upgrading. We are seeing a real craving for high-end products like notebooks, graphics card and LCD monitors. People want these products and this is happening with sanctions being in place. Imagine how much more sales there would be without sanctions and product being shipped in by American vendors?
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